Valuation vs Pricing

by finandlife19/07/2018 08:50

"The most egregious valuation mistake that I see investment professionals make is mistaking pricing for valuation. Most investment professionals don’t do valuation, they do pricing. What I mean by that is that you price a number to a stock based on what other people are paying for similar stocks. Any time you use a multiple comparable you’re not valuing the company, you’re pricing a company. Ninety percent of the time, when someone says “I’ve valued a company at X”, I always have to stop and ask them, “What do you mean value the company?”. Most of the time when I extract the answer, the answer is that they’ve really priced the company. There’s nothing wrong with pricing. But it’s not valuation." Damodaran

“Valuation vs. pricing is like dreaming vs. reality.  Even though your dream is beautiful, your reality can still be hard and ugly. You may have a scary dream when you're enjoying nice and comfortable reality. You don't always get what you dream, and it's reality. However, without dreams, you reality is meaningless. So, you're free to dream on, but  you have to act on what reality brings you. Remember, you cannot live without both.” Longthai

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